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Zillow Group, Inc. Message Board

  • surbiton99 surbiton99 May 7, 2013 9:07 PM Flag

    Zillow costs out of control

    Very easy to see why Zillow lost 11 cents a share compared to analysts projections of a loss of 3 cents a share. They are BUYING revenue, simple as that. Revenue increased by 70.7% compared to same quarter last year, but Expenses increased by 102.3%. Sales and Marketing expenses increased by 138.1% on a like for like basis. So it seems they have a sweatshop sales department cold calling Realtors in a desperate attempt to sign up Premier Agents. Unfortunately the incremental revenues generated didn't come close to covering the incremental costs. Anyone can grow revenue by 70% like Zillow did ,but that level of growth is a massive failure for a company with a PE ratio of 350 especially as they throw money at buying the revenue.

    Other costs are equally out of synch with revenue growth; Technology & Development costs increased by 111%, and G&A costs increased by 85%. Zillow is failing to achieve any economies of scale as it grows. It has substantial intangible assets on its balance sheet in respect of Goodwill and costs incurred that it is amortizing. Not looking good at all for future and one has to think of possibility for an impairment write off at some time.

    Full disclosure: I am a Zillow cynic who has serious issues with how Zillow imposes substantially inaccurate Zestimates on private homes and refuses ALL requests to correct or delete these erroneous valuations when requested to do so by the homeowner. This is totally unacceptable in any fair minded society especially when 17% of Zestimates are more than 25% incorrect.

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    • This is the AMZN model ... increase up-front cost to establish the brand as the de-facto standard. Seems to be working as they are miles ahead of the competition. They haven't even really started tapping "Diggs" or the rental side of the business so the future looks pretty bright.

      Sentiment: Strong Buy

      • 1 Reply to go_for_the_gusto
      • Zillow "Dogs" is nothing more than a gimmick. Zillow have demonstrated total incompetence with its flawed zestimate algorithm with 17% of zestimates more than 25% inaccurate. Using the same team to develop a home improvement algorithm is nothing more than a joke. Stan 'Humpty Dumpty' Humphries knows zero about housing, and even less about home improvements, and 'Dogs' will soon be quietly forgotten.

        Far more interesting is what contributed to the out of control costs relative to revenues. It has little to do with Advertising costs as suggested by CEO Spencer Rascoff on CNBC today ,but more to do with the fatcat Zillow executives awarding themselves a massive increase of $2.7m in share based compensation during the quarter - up from $1.4m a year ago to $4.1m this quarter. Nice work if you can get it at the expense of shareholders. Mind just look at the almost daily Form 4 filings as these guys raid the ATM and take millions out the company from gullible zidiots and it isn't a surprise to anyone whats going on here.

    • Just when you think things couldn't get any worse for Zillow I read in the SEC Form 10-Q filing that a $7.1m charge will hit the P&L in the 2nd quarter. Interesting this wasn't mentioned on the 'history making'social media' earnings call, and no mention of which rat has jumped the sinking ship. If I was to make a guess it would be David Vivero the RentJuice founder and the person running Zillows rental marketplace. The $7.1M charge means that Zillow starts the 2nd quarter with a 21 cents a share loss which based on current expense run rate will be impossible to recover from. No doubt there will be revised 'guidance' sometime soon as halfway thru the quarter already.

      Note 12. Subsequent Events
      In April 2013, pursuant to the terms of a Restricted Stock Unit Award Notice and Restricted Stock Agreement between Zillow and a former employee, 218,071 unvested restricted stock units held by such employee became vested, such that the former employee is entitled to receive one share of Zillow’s Class A common stock for each outstanding restricted stock unit. As a result of the accelerated vesting of the restricted stock units, we expect to record approximately $7.1 million of share-based compensation expense within sales and marketing expense during the three months ended June 30, 2013

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